UnitedHealth Group’s Valuation Fell after 3Q15 Earnings
Rising Enrollments Help UnitedHealth Group Post Strong 3Q15 Results
Valuation
Following its 3Q15 earnings release on October 15, 2015, UnitedHealth Group’s (UNH) share price witnessed a drop of 3.9% while its price-to-earnings multiple (or PE) also declined by 1.4%.
The above graph shows that UnitedHealth Group has consistently traded at higher PE multiples as compared to its peers such as Aetna (AET), Anthem (ANTM), and Cigna (CI). Humana’s valuation surpassed UnitedHealth Group’s multiples as a result of the announcement of the former’s acquisition by Aetna. To find out more about UnitedHealth Group’s PE valuation, please refer to UnitedHealth Group’s valuations compared to its peers.
UnitedHealth Group’s valuations suffered despite the company beating expected diluted earnings per share (or EPS) by $0.01 in 3Q15. This can be attributed mainly to investor sentiment, which continued to be low due to the company’s higher medical costs and subsequent 1% decline in net profit margin on a year-over-year (or YoY) basis.
Analyst recommendations
Based on recommendations from 27 analysts, a Bloomberg survey reported that 81.5% of analysts rated UnitedHealth Group as a “buy,” 14.8% rated the company as a “hold,” while only 3.7% rated the company as “sell.” Piper Jaffray, Barclays, BMO Capital Markets, FBR Capital Markets, and J.P. Morgan were some of the notable positive ratings. These research firms have projected the company’s target price in the range of $135 to $150. Goldman Sachs issued a “neutral” recommendation while Morningstar issued a “hold” recommendation after its 3Q15 earnings release.
Instead of directly investing in UnitedHealth Group, investors can get exposure to the company through the SPDR Dow Jones Industrial Average ETF (DIA). UnitedHealth Group accounts for about 4.7% of DIA’s total holdings.
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